What a difference a year makes.
This time last year, Northern Virginia, with submarkets like Tysons Corner, Reston and Dulles, led the region in net absorption, square foot prices and new construction. But that was before dot-coms got dot canned. Along with the demise of Internet-specific companies, Internet-related firms all the way down to heavy hitters like telecom-equipment makers and optical-networking firms have backed out of leases or abandoned new construction all together.
In all, Transwestern reports there has been two-million sf net absorption YTD, but 3.9 million sf of sublet space has been returned to the market during the same time period, eliminating any gains.
The amount of space under construction, 9.2 million sf, is down from 11.7 million at year-end 2000. And only 41% of that space being built is pre-leased, versus 50% at the end of last year.
The vacancy rate in Northern Virginia is now 8.7%, and Transwestern predicts that will ultimately rise to 9% or 10% by mid-2003.
Far across the spectrum, the District, which was desperate for technology companies 12 to 18 months ago, has a region-leading vacancy rate of 4.9%, and that includes subleasing. Excluding subleasing, the District has a vacancy rate of 3.5%. The net absorption was 963,000 sf for the first half of 2001.
And compared with Northern Virginia, Washington has 6 million sf under construction, which is 65% pre-leased. This is still strong with 5.9 million sf under construction in the first quarter, 67% of which is pre-leased.
Suburban Maryland has been hardest hit, because it was second fiddle to Northern Virginia in the tech boom, and now it's in third place behind Virginia and the District.
Transwestern says net absorption is 452,000 sf through the first half of the year, but only 57,000 sf in the second quarter of 2001. But nearly 900,000 sf of sublet space has been returned to the market in the first six months of this year.
New construction is 4.5 million sf, with 58% pre-leased. However, the new construction means supply is well outstripping supply and Transwestern expects rental rates to fall and vacancy rates to continue to rise until the middle of next year. Presently, the vacancy rate, with sublet, is 8.1%.
Finally, Baltimore, separate from the suburban Maryland market, is following a similar pattern. Transwestern says, "deliveries have been excessive, and combined with slow leasing, the vacancy rate rose."
In all, vacancy rates, including sublet, are at 9.9%, up from 9.4% in the first quarter.
One can see the issue of deliveries all the better when you look at the fact that net absorption for the second quarter of this year was 235,000 sf, but the first quarter was 1.5 million sf.
And there is a large amount of new office construction, five million sf, with only 17% of the space pre-leased.
Transwestern anticipates that vacancy rates will hit 12% by mid-2003, but rental rates will remain stable.
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